Atlas Shrugged: The Mocking

Monday, September 5, 2011

Reap, Sow

I, too, hope Conservative Daddy raises his son to be just like him. When the government is finished helping the financial elite bleed Social Security to death and C'Daddy needs to move in with his son, his son will probably tell Dad that he should have saved for his old age and he's on his own.

Social Security is solvent for years, correct? According to CBO it's funded for the next 25-30yrs. Labor Day so I won't do any work looking up figures. Considering that, it's far more solvent than all the TBTF Banks and adds nothing to the deficit, unlike those TBTF Banks.(TARPs 1 and 2)

What? Social Security is an accounting identity. It isn't actually a real pile of money lying somewhere in a bunker. It's just a promise to pay at certain dates in the future, so I don't even know how it can't be solvent or non-solvent.

Uh, Myles - The SSA invested all of the surplus over the past decades into an extemely safe investment - Treasury Bonds. Unless you are going to claim that US Treasury Bonds are worthless, and say my granfather gave me a worthless promise to pay $50 when he gave me a $50 US Savings bond when I was younger, I call bullshit.

If I owe you $100,000 a year and I have ten million in US Trreasury bonds to pay that debt, that means I will be solvent on your payments for 100 years. Period. Unless you want to say the US will do what it has never done and not pay up on its bonds.

What? Social Security is an accounting identity. It isn't actually a real pile of money lying somewhere in a bunker. It's just a promise to pay at certain dates in the future, so I don't even know how it can't be solvent or non-solvent.

Quite possibly the stupidest thing you've uttered on this site, myles. Note: there are no huge piles of money, the entire federal government is based on accounting identities. Therefore, nothing is solvent.

This sounds a lot like my dad. I remember, when I was growing up, he came to talk to my class about how he ran for congress. At the end, a kid asked him why he decided to run. The answer he gave was to save Social Security because if we didn't privatize it "you kids will be paying over half your paychecks to the government just to support baby boomers." I remember how much that freaked me out when I was all of seven years old. Thankfully, I've since realized how much BS I learned from him when I was younger.

SS is invested in US Bonds- if US Bonds aren't safe, someone should tell the rest of the World, especially the Banks which are dumping their "cash" into US Treasury Bonds.

US bonds are a promise of the US government to pay. So SS invested in US bonds is the US government securing a promise to pay by putting the money into another series of promises, from itself, to pay.

It might as well not fucking bother and just declare that I promises to pay X amount at Y date in the future for SS and hat's the end of it.

The SS trust fund is a legal fiction and nothing but. Whether the SS trust fund exists or is even solvent is completely irrelevant, because the SS trust fund is meaningless; it's just a promise to pay by the US gov't, but repeated for another reiteration. There's no question of solvency in the SS, because the whole question is the solvency of the US gov't, not of the SS.

When I hear blather about how the SS trust fund is solvent or insolvent (from both US liberals and conservatives) I just want to crawl up in a fetal position. It's so fucking stupid. The SS trust fund doesn't exist. It's merely another way of saying "US Gov't IOS's."

Myles is right on this. The SS tax buys treasuries and then the gov immediately borrows against those treasuries (since they are assets) so whatever "money" was there, is long gone. We are really arguing about the solvency of the US gov and its willingness/ability to pay its IOU's. Not sure it matters much, but saying SS is funded is meaningless. The function of fiat money is a circular logic that only works as long as everybody believes it works (not saying the gold standard is any better, it is equally meaningless). Destroying SS allows the gov to ignore some to all of the IOU's changing its accounting tables. It is a plutocratic theft pure and simple.

Well quite. I mean I am not opposed to SS or anything, I just think the whole "SS trust fund" bullshit is just that, misleading bullshit. There is no trust fund.

There is, however, a sovereign promise to pay, which in fact is as good a state pension can get given the relevant circumstances. (The US is the largest economy in the world; it can't hedge against its own economy.)

But telling people that there's actually a pool of money out there for their retirement called the SS Trust Fund? Oh fucks sakes, that's more or less lying in them, in substance if not in form. Just tell them the truth, which is that they have the word of Uncle Sam to depend on for their retirement. And they can then evaluate for themselves how much they wish to rely on, or not rely on, that word.

fish: I recall having this argument or something like it with you before, back in the day (as in a few months ago). AWS' response applies to your response. By saying "SS is (un)funded", most people are talking about whether the government is technically able to pay it*. That's pretty much notionally equivalent to the presence of piles of money. Calling government-issued paper money/electrons "fiat" doesn't make it any less "real".

I recall having this argument or something like it with you before, back in the day

Yes we did, and you didn't convince me then either.

Sure the US gov can pay. The US gov can pay all of its debts tomorrow if it wants. The Treasury can make a 50 Trillion coin tomorrow and pay off all debts and have 48 trillion dollars to spare. This is a separate issue from what Myles and I are talking about. If we go with the balance sheet analogy, saying SS is funded while ignoring all the credits and debits on the rest of the Fed balance sheet is ridiculous. Each year there is a + added for SS and a - added for borrowing against those T-bills. So 0 gain. Now it is true that the balance sheet is not an appropriate way to look at a gov budget when that gov can make its own money (+'s at will). But propagating an argument that SS is fine based on a balance sheet analogy is a deception.

The Imaginary Fund argument leads to thievery. Payroll taxes are supposed to be dedicated to the program, which was basically designed to be pay as you go, because nobody really wanted the SSA to end up owning everything. Then in 1983 the Greenspan Commission decided to build up the fund rather than soak future workers to pay for a coming bulge in future retirees. Then the fund was used to fund a deficit in the general fund caused by too low (non-payroll) tax rates.

Now, of course, it's not a real fund, and (non-payroll)tax rates don't have to rise to cover the paydown. Obligation becomes entitlement, and another $4 trillion gets nabbed by the Overlords.

fish: Now it is true that the balance sheet is not an appropriate way to look at a gov budget when that gov can make its own money (+'s at will). But propagating an argument that SS is fine based on a balance sheet analogy is a deception.

As I once again vaguely recall, last time you would hardly even concede that the government could/should cover its obligations by "fiat". And now, put this way it sounds like you're arguing against a strawman using rather ronpaulitarian (oh ho!) arguments. Equivocating on the nature of what is owed to SS as though it is no longer there legitimizes, as Downpuppy alludes, kleptocracy.

For this

But propagating an argument that SS is fine based on a balance sheet analogy is a deception.

to be true, one would have to come up with a condition under which the US government does not "fiat" new money, and by not doing so, is thereafter unable to make payments to the recipients. This is entirely "possible," but even after the recession it's not likely in any near time-scale as far as planning goes.

It's like saying that the assets in a pension fund, leveraged to make further investments (as I assume they can be) are not there, are not generating revenue in and of themselves. It ignores that the investments made using these IOUs as collateral are making profits of their own.

Seen this way, your argument is quite pernicious and concedes very much to right-wing memes about government spending, based on a misguided nihilism about "fiat" money.

Myles - the market disagrees with you. People and countries all over the world pay good money to invest in US treasury bonds. They do so because the bonds have real value. If you go out and try to sell them, someone else will buy them for their value. If they were "worthless" you'd not find so many ready buyers.

The SSA is required by law to invest its surplus rather than just sit on it, for the good reason that an investment can grow, ultimately saving money in the long term.

The SSA invests in the safest, and therefore most long-term valuable bond out there, US Treasury Bonds.

As others have pointed out, if you want to pretend these bonds are worthless, you might as well pretend all money is worthless and pretend our whole economic system is worthless.

Seen this way, your argument is quite pernicious and concedes very much to right-wing memes about government spending, based on a misguided nihilism about "fiat" money.

This is complete nonsense. I am not arguing that SS shouldn't be paid. In my first comment, I said that insisting SS can't be paid is plutocratic theft. All I am saying is what Downpuppy is saying (I think), existence of the fund and it being funded is imaginary. Pretending otherwise is a willful fiction.

All I am saying with fiat money is that it works because everybody believes it works. I said the Treasury could make a 50 trillion dollar coin. It is entirely within their power and that would balance the books, but the shit would hit the fan internationally because their imaginary world would be rocked. If "confidence" is lost in the US dollar, the system crashes. This is the fundamental nature of money. Just because Paul also uses the term to drive a crazy agenda does not negate that reality. Gold standards were and are just as imaginary.

It's like saying that the assets in a pension fund, leveraged to make further investments (as I assume they can be) are not there, are not generating revenue in and of themselves.

No it's not, because assets in a pension fund are purchased externally. If a pension fund buys a treasury, it is an investment with a pretty certain payoff (the gov has yet to default on a debt), but when the gov "invests" in a treasury, it is writing an IOU to itself. A pension cannot invest in pension bonds because that would be a ponzi scheme. The gov can do it because the gov can print more money if it has to (with ramifications to the confidence circle jerk), but it is crazy to say it is funded separately when it is all one pool of money.

It ignores that the investments made using these IOUs as collateral are making profits of their own.

As others have pointed out, if you want to pretend these bonds are worthless, you might as well pretend all money is worthless and pretend our whole economic system is worthless.

No you idiot, I am not saying any such thing. I am saying that the money was not invested in bonds in the first place, because an entity cannot invest in debt issued by itself. When companies do it, it's called "buyback" and the securities in question are then generally cancelled out. The US bonds might be worth tons of money (they are), but it doesn't manner because it's impossible for the US government to be its own creditor.

For the rest, just refer to what fish said.

The aggressive financial illiteracy of left-wingers when it comes to SS is really quite astounding.

Myles IS ArgleBargle.

And you are a financial illiterate. What's your point again? Try to figure out the basic principles of accounting before spouting off party line idiocies.

I don't particularly enjoy wasting my time combatting basic Michelle Bachman-esque financial idiocies, so just refer to what fish said.

I assume the bank will give me back my money after I deposit it unless someone steals it or the bank goes bust (FDIC aside). I also assume the government will give us our Social Security, which we put into the system through its tax. The money is loaned out in both cases and might be "fictional" in an accounting sense but in a practical sense it should be reasonable to talk about the fund as if it will be paid out.

Naturally the financial elite do not want to pay back that loan and if they can steal it they will--they've stolen everything else that wasn't nailed down. It is, unfortunately, our job to make sure they don't steal it, and that means we have to fight back very hard.

It would undermine our efforts to say that the SS fund is fiction and therefore it would be natural or inevitable if it were not paid out. Americans worship the rich, however, and the rich have all the power in this struggle so I believe it's only a matter of time before the money is stolen while we watch helplessly.

(But that doesn't mean we should give in. Even if you lose you can do some damage to the other side and in time that damage starts to hurt.)

Has anyone else noticed that this is the discussion that has caused Myles to finally lose his composure? He's dropping f-bombs and calling people idiots, but before this you could poke him with a sharp stick and he would calmly explain to you that stick poking was impolite and not a valid contribution to the debate. What happened?

it is human nature that what a person hates is often a self-deficiency. poor myles.

How absurdly wrong and nonsensical. I know very little of many subjects that I hold in great esteem, such as biology, chemistry, and so on, but I do not therefore have some complex of self-deficiency because of it.

What an utter non sequitur.

Now, now. I expect people to call each other idiots with a little more finesse.

It's a bit hard to finesse aggressive ignorance of the (unjustifiably) self-righteous kind.

The longer this discussion goes on, the more I am convinced that there *is* an ideological point at stake in these definitions. I'm not *actually* accusing you of being a ronpaulitarian but I am suggesting that you're uncritically allowing distinctions that the economic right uses to set the terms of the debate and ensure that left-wing argumentation is ipso facto "financial illiteracy".

The point of contention is whether the government "can lend to itself." I suggest that this is very much the wrong way to look at it, as though The Government were just another organization in the economy subject to the same conventions of accounting that other organizations are.

It's not just money that is created at the disposal of the sovereign, it's property itself, and the sovereign by the force at its disposal can arrange it as it sees fit within its ambit. That's practically the definition of sovereignty.

So of course the sovereign can create entities that buy assets from one another, and of course it is legitimate to account for them separately. From this perspective, the only difference between SSTF and a private pension fund is that the sovereign has granted particular rights to those designated as owners of the "private" fund.

Just as the sovereign can "print" money, the sovereign can "print" ownership, and designate it to "the public" or to private entities. It can force "private" individuals and organizations to recognize certain kinds of property/assets and even oblige them to purchase it under certain conditions.

In that sense, these "private", domestic institutions as much The Government Lending To Itself as a public agency. AWS' criticism holds: if the IOUs in the SSTF are accounting ephemera, so too is the very independent power of the sovereign to designate property. So too are all pension funds. It's not a distinction that matters, except in a right-wing world where private investment is legitimate and public is not.

The argument comes from the same family of arguments that decries public investment as having little or no positive effect.

I used to use terms like "fiat" money, but for some of the reasons above, I've been trying to quit. "Fiat" money is intended to be set in opposition to "natural" money that stems from some believe natural life people. But the value of money is not just a social fiction, the "fiat" really means something: money is valuable because people are *forced* to use it by the same mechanism that property is enforced.

The same reality that permits the government to "print money" is what permits the sovereign to assign property and decide what is and what is not property and who can and can't hold it. When vaguely left-ish neoliberals like DeLong and Krugman claim that the SS IOUs are valid investments and talk about the cash flow from and to SS, that is ultimately what they mean.

If it is merely a matter of "buyback" and the "government not being its own creditor", then we are permitting an ideological framework (government as "equal" participant, rather than private property fully subtending from government) to be framed as fact.

The point of contention is whether the government "can lend to itself." I suggest that this is very much the wrong way to look at it, as though The Government were just another organization in the economy subject to the same conventions of accounting that other organizations are.

Mandos, much of what you say is formally true, but there are two points that completely deflate the whole argument. 1) the "value" of the US dollar completely relies on the fiction that the US gov behaves by the same rules as the rest of the economy. I said before that the ledger sheet isn't really a true analogy because the gov can add money at will to the equation, (or property or any asset as you argue), but the fiction is necessary so that world "confidence" in the value of the US dollar is preserved. This is why we don't make a 50 trillion dollar coin and it is also why I am saying the whole economy is imaginary. 2) You are arguing that it is legitimate for each created institution to be treated separately. Okay sure, but the reality is that the SS fund is not treated that way. Assets are transferred into the SS fund and then congress immediately borrows money against them to cover current expenses. I.e. the gov has transferred the assets into another column on their ledger and left the IOU. It is complete doublethink to then argue that SS is "funded" except by arguing the gov can get something for nothing. Sure the ledger is fictional, but see above, we can't upset the world economy confidence fairies or the whole world system crashes.

The arguments that SS is funded or not are ultimately useless because they can be argued legitimately from both sides. It is better to just argue that SS is a right that citizens have paid for. We willingly pay into the system for our financial security in our older years. It is theft if the gov tries to use it for something else. We have not paid into the system to make sure Jamie Dimon's compensation package is secure and we have not paid into the system so the US can kill and torture as many brown people as it can find. This is an argument with real bite.

Let's just take it fresh from Matt Yglesias, in his just put-up post:Social Security is not a prefunded pension plan or a savings scheme.This is the standard progressive position, not your sophistry, Mandos. Social Security is not a prefunded pension plan, and something which is not prefund logically cannot have such a thing as a trust fund, or one that is at all relevant to anything.

fish, I think Mandos's problem is that he doesn't believe in such a thing as intellectual honesty. He imposes political ends above intellectual means, and debases both in the process. For him, as for many others, argument is not a process for the discovery of truth, but a sophistic process of achieving a specified political end.

I don't expect to convince anybody else, but here's a question that will at least resolve this issue for me. Suppose that tomorrow, the US treasury sells $1B worth of T-Bills on the open market and uses the cash thus obtained to discharge $1B worth of whatever security the trust fund is holding. Then social security uses the money thus obtained to pay out $1B worth of pensions owing.

What is the effect on the balance sheet of the US of this transaction?

I think if the trust fund is real, then the US's assets are reduced by $1B net (trust fund) and the US's liabilities are reduced by $1B net (pension owing). In addition, the total debt owed by the US does not change. This is exactly what would happen to the balance sheet if the trust fund consisted entirely of a pile of gold doubloons.

On the other hand, if the trust fund is not real, then the net effect on the balance sheet should be no change (a new debt liability replaces the old pension liability) and the total US debt should go up.

I honestly don't know which of these two cases is what would happen. But if (as I suspect) it's the first, then the trust fund is real. The ability to turn one kind of debt (owed to self) into another kind of debt (owed to other people) and cash without changing "the national debt" is a significant issue, I think.

Is there a trust fund into which money is paid in, then paid out to SS recipients? And is that money invested into US government special issue securities?

And if there is a trust fund into which money is deposited and withdrawn, how can there be no trust fund? Because the money is invested in securities, which are sold to pay benefits? I don't see how that is different from putting money in the bank, which is invested but paid out on request. Both bank and gov. pledge to pay out and do so.

The word "progressive" has been so debased as to include standard-issue left-leaning neoliberals such as MY that I don't think I count as a progressive.

I think Mandos's problem is that he doesn't believe in such a thing as intellectual honesty. He imposes political ends above intellectual means, and debases both in the process.

Another way of putting this is that I don't believe that the left should disarm itself in accepting definitions that have been rigged in advance by the opposing team. There is no economic means that is not a political end.

1. I'm curious what you might think of the Japanese keiretsu, where, as I understand it, a banks lent money to companies in which they also had influential or controlling ownership and still, as I understand it, do. Is the bank "lending to itself"? There is a definite issue with the fluctuating value of assets in terms of whether the banks were going to get back the loans they had made to "themselves"...

2. Your use of the 50 Trillion Coin example is misleading. At the moment, the alleged confidence fairies are practically crying out for fiscal or monetary expansion. Yes, a 50 Trillion Coin would hurt the relationship of the US sovereign with other sovereigns. But we aren't talking 50 Trillion here. There is yet another excluded middle here: just enough to pay back what was lent to the government, from the assets in which the government invested...

3. The assets in which the government invested via these IOUs are not all unproductive assets but return money to the government with which it can make good on the IOUs.

But we're going around in circles. I don't accept your (or Myles') conceptualization of the issue for many reasons including the actual relevance of the issue of "confidence", the manner in which money obtains its value (a political question) and so on and so forth...

I do agree with the end goal as you state it here:

It is better to just argue that SS is a right that citizens have paid for. We willingly pay into the system for our financial security in our older years. It is theft if the gov tries to use it for something else.

It is merely the scope and nature of the actual theft that is at stake. I don't think it's theft for the government to spend using sovereignly defined assets as collateral, and I do think it's theft for the government to turn around and claim that this was an accounting-fiction Ponzi scheme.

That's because I know that the sovereign has the right to create all assets and all assets depend on the sovereign, and to deny this is to deny the existence of the public good.

It will find a way to make war either way. What it won't find a way is to build bridges.

If anyone cares, at this point, here's trusty old Wikipedia's summary of the perspectives on the "reality" of the SSTF.

We are ultimately talking about what happens to excess money that was delivered to SS via payroll taxes and whether it continues to exist in some sense when it was used to lend to the government. If wealth was created through this process on which SS has a claim (far less than 50 Trillion at this point), then yes, it does continue to exist.

I don't see how that is different from putting money in the bank, which is invested but paid out on request. Both bank and gov. pledge to pay out and do so.

Susan, the difference here is that congress immediately borrows money against the SS fund and spends it (not investing). So yes there is a column on the gov budget that is a + for all SS assets, but there is another - column item that is the exact same amount every year. There are modifiers to that (multiplier effects that Mandos alludes to for one, with gov spending coming back as taxes again), but the bank analogy isn't the same because the bank is lending to someone else with a repay promise attached (an asset) while the gov is lending to itself and the only way the gov can pay itself is through more taxes or printing money since (theoretically at least) the gov isn't a business.

I think if the trust fund is real, then the US's assets are reduced by $1B net (trust fund) and the US's liabilities are reduced by $1B net (pension owing). In addition, the total debt owed by the US does not change. This is exactly what would happen to the balance sheet if the trust fund consisted entirely of a pile of gold doubloons.

LC, this is a good argument, but the reason it doesn't work is because as I said above, Congress has already taken out T-bills against the fund and spent that money in the general budget. So to take out more T-bills is double dipping. You will double your debt.

1. I'm curious what you might think of the Japanese keiretsu, where, as I understand it, a banks lent money to companies in which they also had influential or controlling ownership and still, as I understand it, do. Is the bank "lending to itself"?

No it is an accounting fiction. It is an asset transfer not a loan.

Your use of the 50 Trillion Coin example is misleading.

An extreme example to make a point. The debate should be how much money printing is "safe" not is the SS trust funded or not.

The assets in which the government invested via these IOUs are not all unproductive assets but return money to the government with which it can make good on the IOUs.

Acknowledged. But this is a modifier to the simplified (for argument) equation, not a rebuttal.

LC, this is a good argument, but the reason it doesn't work is because as I said above, Congress has already taken out T-bills against the fund and spent that money in the general budget. So to take out more T-bills is double dipping. You will double your debt.

I don't understand that argument. When the money was spent, it wasn't debt. It was money.

Let me try again, with numbers. I think that right now, the US national debt is $14T (or something), of which $5T is the SS trust fund and $9T is debt held by other investors.

I think the government can spend $5T just by turning trust fund debt into other investor debt. The total is still $14T. Is that really "printed money", if it's already on the books?

Suppose they hadn't bothered with all of this, and instead of talking about trust funds, Greenspan had just said "We're going to raise payroll taxes to offset government spending". Then they would have had $5T to spend over the last thirty years and the national debt would be only $9T today. So, they'd have to borrow $5T at market rates over the next twenty years to pay SS obligations.

The end result is the same. $14T in government debt. But today, as things are, they already have $14T of government debt, so we know the market will accept that much. Why is it inflationary to change the name on the bond?

LC, all of what you say is true.This:don't understand that argument. When the money was spent, it wasn't debt. It was money.

is right, but the money was spent on something other than SS so spending it means it now becomes a debt to the fund, i.e. that money is no longer there, i.e. there is no trust.

and this:

Suppose they hadn't bothered with all of this, and instead of talking about trust funds, Greenspan had just said "We're going to raise payroll taxes to offset government spending".

is in essence what happened via various accounting tricks by congress. (The cynical interpretation of this is that Greenspan set up the system to shift more of the tax burden to the lower income earners and away from capital gains taxes.)The argument upthread has been whether SS is "funded" i.e. do these T-bills represent assets or debts. You said, debt is $14 trillion either way which is all I am arguing as well, the trust doesn't represent assets, it represents obligations. It is better to say currently US credit remains good so it can continue to borrow for spending at excellent rates and can pay out SS no problem. But at some point that could cease to be true and then things get more problematic. I have no clue as to what that tipping point might be. Way above my paygrade.

But this "accounting fiction" cause havoc among Japanese banks in the 90s, because the fictional-loans went bad.

Again it boils down to how one interprets these things in the case of formally separate institutions.

We're going 'round in circles on the rest. My problem with your use of the limit case of 50-trillion is that it kind of begs the question. The limit case only matters if the issue is confidence. Etc, etc.

It all boils down to when you think the theft happened. Did it happen when payroll taxes were raised and we're just squabbling over the entrails? Or is it in danger of happening when people declare "accounting fiction!" and turn around and tell Americans it's not there? You seem to believe it's the former. I believe it's the latter.